What does the rate cut mean for your homeloan?

By Staff Writer

The latest cut by the Reserve Bank in the interest rate by 50 basis points or 0.5% was announced on Thursday the 13th of August 2009. As a policy of inflation targeting is followed by the Reserve Bank interest rates had gone sky high to get inflation under control. It now appears that it is. So the interest rate was dropped just a tad. This will have an effect on how much you pay on your homeloan every month and is a welcome relief in the recession. So what will the effects be on your 20 year homeloan?

 

  • Half a million Rand homeloan = R 106.04 savings per month
  • One million Rand homeloan = R 338.08 savings per month
  • Two Million Rand homeloan = R 676.17 savings per month

 

These are welcome figures and while the amounts saved are not that large they do come as a bit of respite in the face of the slowing economy. There is less money around that last year and the money we do have is getting tighter. So every little bit helps you. There are two ways to look at the savings, the first is that it leaves more money in your pocket and everybody likes a bit more money in your pocket. The other way to look at it is in terms of paying off the capital on your homeloan quicker. If you pay above what you are required that goes to servicing the capital rather than the interest.

So if you don't actually pay less for your homeloan each month and instead keep paying the same as before the rate cut you can pay capital off on your homeloan quicker. In fact on the Half a million Rand homeloan over a year you would pay off R 2020.48 on capital, on the million Rand homeloan you would pay off R 4056.96 and on the two million Rand homeloan you would pay off R 8114.04 over the course of a year by just paying your bond off at what you were paying last month. These savings add up to real value especially if you consider that a homeloan is a long term investment and needs to be viewed with a long term outlook. So put your savings into your capital and be in a better position come the recovery.

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